NOTE 9. STOCKHOLDERS’ EQUITY

2019 Capital Raise

On May 31, 2019 we received gross proceeds of $3 million by issuing three million shares of our common stock and three million warrants (“2019 Warrants”) to purchase shares of our common stock (together “2019 Units”) in a registered direct offering for $1.00 per 2019 Unit. The 2019 Warrants have an exercise price of $1.30 per share and are exercisable for five years from the date of issuance. We received cash of $2,604,355 which is net of $395,645 of issuance costs, of which $318,681 is included as amortization of debt discount and equity issuance costs and $76,964 is included as a reduction of additional paid in capital. We used a portion of the net proceeds from the issuance of the 2019 Units to pay down the 8.5% Notes by $5,743,000, leaving $1,106,000 outstanding.

Share-based compensation

We use the fair value method to account for stock-based compensation. We recorded $752,467 and $1,204,921 in compensation expense for the three months ended June 30, 2019 and 2018, respectively and $2,244,963 and $2,963,492 for the six months ended June 30, 2019 and 2018, respectively. This includes expense related to options issued in prior years for which the requisite service period for those options includes the current period as well as options issued in the current period. The fair value of these instruments was calculated using the Black-Scholes option pricing method.

As of June 30, 2019, there was approximately $2,886,358 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of nine months.

Warrants

On May 31, 2019, we issued the 2019 Units at $1.00, which triggered the “down round” feature specified in the 8.5% Warrants. As required by ASU 2017-11 “Earnings per Share (Topic 206)”, we calculated the difference between the 8.5% Warrants’ fair value on the date the down round feature was triggered using the original exercise price and the new exercise price. The difference in fair value of the effect of the down round feature is reflected in our condensed consolidated financial statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation.

The underlying assumptions used in the binomial lattice model to determine the fair value of the 8.5% Warrants were:


	Pre-Trigger	Post-Trigger
Current stock price	$ 0.95	$ 0.95
Exercise price	$ 2.35	$ 1.00
Risk-free interest rate	2.21 %	2.21 %
Expected dividend yield	–	–
Expected term (in years)	0.89	0.89
Expected volatility	123%	123%
Number of iterations	5	5